EFiled: Mar 04 2020 04:02PM EST Transaction ID 64789431 Case No. 2019-0948-JRS IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE CONSOLIDATED IN RE VIACOM INC. STOCKHOLDERS C.A. No. 2019-0948-JRS LITIGATION PUBLIC VERSION AS FILED MARCH 4, 2020 FIRST AMENDED VERIFIED CLASS ACTION COMPLAINT Plaintiff California Public Employees’ Retirement System (“CalPERS”), Park Employees’ and Retirement Board Employees’ Annuity and Benefit Fund of Chicago (“Chicago Park”), and Louis M. Wilen (together with CalPERS and Chicago Park, “Plaintiffs”) submit this First Amended Verified Class Action Complaint directly on behalf of itself and all other similarly situated public stockholders of Viacom, Incorporated (“Viacom” or the “Company”), against the defendants named herein for breaches of fiduciary duty in their capacity as directors, officers, and/or controlling stockholders of the Company. The allegations in this Complaint are made upon Plaintiffs’ knowledge as to themselves, and, as to all other matters, upon information and belief, including the investigation of undersigned counsel of publicly available information and extensive books and records produced by the Company.1 1 Pursuant to the applicable confidentiality agreement, the Company is only entitled to general incorporation of documents produced in response to the Section 220 Demand if it provides specific certification as to the completeness of the production within the scope negotiated amongst the parties. Despite several requests to the Company for certification of completion, the Company has not so certified. THIS DOCUMENT IS A CONFIDENTIAL FILING. ACCESS IS PROHIBITED EXCEPT AS AUTHORIZED BY COURT ORDER. NATURE AND SUMMARY OF THE ACTION “A Reunited CBS and Viacom Will Mark the End of a Four-Year Battle for Shari Redstone.” Variety, August 13, 2019. 1. This stockholder class action challenges the long-anticipated yet much- maligned merger (the “Merger”) of two controlled companies at the behest of a controlling stockholder that has already admitted in judicial pleadings that the merger triggers the entire fairness standard of judicial review. A discrete number of objective facts illustrate why the Merger is patently unfair to Viacom shareholders. 2. First, Shari Redstone (“Ms. Redstone”)2 vigorously fought for years to assume control of the media empire her father Sumner Redstone (“Sumner Redstone”) built so that she can re-unify (and consolidate control over) the two Redstone “family” businesses, Viacom and CBS, Inc. (“CBS”). With Ms. Redstone involved, this Merger was going to happen regardless of whether a fair exchange ratio would ever be set. 3. Second, to get her way, Ms. Redstone steamrolled and effectively reconstituted no fewer than three boards of directors to ensure each would satisfy her demands. Ms. Redstone replaced subversive directors with friends and family Therefore, Defendants cannot receive the benefit of incorporation by reference at all, and particularly with respect to any documents produced after November 25, 2019. 2 To avoid confusion, this Complaint refers to Shari Redstone as “Ms. Redstone” and Sumner Redstone as “Sumner Redstone.” 2 THIS DOCUMENT IS A CONFIDENTIAL FILING. ACCESS IS PROHIBITED EXCEPT AS AUTHORIZED BY COURT ORDER. members on the boards of National Amusements, Inc. (“National Amusements” and, together with NAI Entertainment Holdings LLC, “NAI”) and Viacom and CBS, in which NAI holds over 80 percent of the voting power but only about 10 percent of the economic interests. In 2016 alone, NAI replaced five Viacom directors, and its President and Chief Executive Officer. 4. Third, after an abortive 2016 merger effort, Ms. Redstone began her second push to merge the two media companies in 2018. At a time when CBS was financially stronger relative to Viacom than CBS is today, the two boards agreed on an exchange ratio of 0.6135 CBS shares for each share of Viacom stock (implying a $12.8 billion Viacom enterprise value). That deal fell through because of Ms. Redstone’s insistence that her loyal Viacom CEO, Defendant Robert Bakish (“Bakish”), assume a leadership role over the combined company, which CBS’s then-CEO, Les Moonves, vigorously opposed. 5. Fourth, in a lawsuit to block the CBS Board’s efforts to protect CBS’s minority investors from Ms. Redstone’s aggressions (while the Viacom Board sat idly on the sidelines), NAI affirmatively pleaded as follows: “With respect to a majority-of-the minority vote, NAI stated only that it would not commit upfront to 3 THIS DOCUMENT IS A CONFIDENTIAL FILING. ACCESS IS PROHIBITED EXCEPT AS AUTHORIZED BY COURT ORDER. such a condition, as was its right, and recognized that any transaction would therefore be subject to ‘entire fairness’ review.”3 6. Fifth, when Ms. Redstone resumed her push for the merger upon Moonves’s ouster in the wake of his sexual misconduct scandal and NAI’s removal of some of the CBS Board rebels, a new problem emerged: Viacom’s financial performance not only stabilized but improved dramatically, while CBS’s performance and prospects deteriorated far worse than the stock market appreciated, rendering an exchange ratio lower than 0.6135 unfair for Viacom minority holders. 7. Sixth, exhibiting their fealty to Ms. Redstone’s wishes and their disloyalty to Viacom minority stockholders, the Viacom special committee made the bad faith decision to pin their exchange ratio negotiations on public research analyst forecasts that objectively undervalued Viacom and objectively overvalued CBS. 8. Seventh, when the Viacom Committee tried to create the patina of arm’s-length engagement by asserting that the previously-agreed exchange ratio should set a floor for restarted negotiations, the CBS Board countered that Viacom’s minority stockholders should receive a lower share of the combined company on account of Ms. Redstone’s unshakeable insistence that Robert Bakish assume the reins of the combined company. The Viacom special committee capitulated, ceding 3 In Re CBS Corp. Litig., ¶ 106, C.A. No. 2018-0342-AGB (Aug. 3, 2018) (complaint) (emphasis added). 4 THIS DOCUMENT IS A CONFIDENTIAL FILING. ACCESS IS PROHIBITED EXCEPT AS AUTHORIZED BY COURT ORDER. massive amounts of stockholder value—including the proportional value created by Merger synergies—to CBS. 9. Eighth, on August 13, 2019, after three years of on-again, off-again negotiations, CBS and Viacom announced the pending recombination of the two companies based on an exchange ratio of 0.59625 CBS shares for each Viacom share regardless of class (implying only an $11.8 billion Viacom enterprise value). As CBS’s legal counsel wrote recently, the final 0.59625 exchange ratio is “objectively favorable to CBS stockholders, well within the range of positive outcomes . , and is a particularly good result in light of agreements reached with Viacom regarding the combined company’s governance . .”4 10. Ninth, although the market has slashed CBS’s market capitalization by about 22 percent since the Merger announcement and CBS’s subsequent disclosure of awful financial projections, Plaintiffs and other aggrieved minority Viacom investors had no opportunity to vote to protect their interests. Ms. Redstone and NAI chose to accept the entire fairness standard of judicial review rather than bear the risk of a majority of the minority condition to the Merger. Reflecting its own misplaced loyalties and lack of independence, the Viacom special committee never even proposed any such condition, much less insisted on it. 4 Def.’s Pre-Trial Answering Br. at 17, Bucks Cty. Emps. Ret. Fund v. CBS Corp., C.A. No. 2019-0820-JRS (Nov. 21, 2019). 5 THIS DOCUMENT IS A CONFIDENTIAL FILING. ACCESS IS PROHIBITED EXCEPT AS AUTHORIZED BY COURT ORDER. 11. Analysts panned the Merger exchange ratio, particularly upon learning of the CBS results and projections that undermined the Street’s prior expectations. One analyst at MoffettNathanson summed it up succinctly: “Let’s not mince words here, it was an abject disaster that forced negative revisions to key metrics (except revenues) at legacy CBS. Over the year, the CBS board and CBS management knew Street numbers were wildly wrong on free cash flow, but somehow never shared that consequential data point.” 12. The Viacom special committee fully appreciated both: (i) CBS’s not- yet-publicly disclosed “abject disaster” numbers, and (ii) that Viacom already had beaten the management-developed 2018 long range plan (“LRP”) that projected cash flows far exceeding the Street’s overly conservative Viacom numbers. By basing exchange ratio negotiations on Street numbers, the special committee forcibly traded Viacom minority shares for CBS shares in a process that tactically ignored Viacom’s strengths while burying CBS’s problems. 13. In sum, even if there is wisdom to merging these companies in the abstract, any exchange ratio had to be fair to Viacom’s minority investors (or NAI should directly pay Viacom’s minority a fair value for their shares). In accepting a 0.59625 exchange ratio based on market valuations that significantly overpriced CBS stock and refusing to tell NAI to contribute any value or give investors a chance to vote the deal down, Defendants Redstone, NAI, Bakish, and the members of 6 THIS DOCUMENT IS A CONFIDENTIAL FILING. ACCESS IS PROHIBITED EXCEPT AS AUTHORIZED BY COURT ORDER. Viacom’s special committee breached their fiduciary duties to Viacom’s minority stockholders. PARTIES AND RELEVANT NON-PARTIES 14. Lead Plaintiff CalPERS held shares of both classes of Viacom stock from prior to the announcement of the Merger until the Merger closed, and was a holder at all times relevant to the conduct giving rise to the claims asserted herein. 15. Additional Plaintiff Chicago Park held Viacom Class B shares from prior to the announcement of the Merger until the Merger closed, and was a holder at all times relevant to the conduct giving rise to the claims asserted herein. 16. Additional Plaintiff Louis M. Wilen held Viacom Class B shares from prior to the announcement of the Merger until the Merger closed, and was a holder at all times relevant to the conduct giving rise to the claims asserted herein.